This office landlord is making real money on nearly empty space in NYC’s hottest address

On the 85th floor of One World Trade Center in Manhattan, there are offices, conference rooms, kitchenettes and co-working spaces. There are not, however, very many people. The offices stand largely empty. And that is just fine with landlord Servcorp.

“We now have 40,000 customers that don’t actually rent any space from us,” said Marcus Moufarrige, Servcorp’s chief operating officer. “They can use our space on a casual basis; they can use infrastructure, we’ve got in telecommunications technology, so their business is really well-represented. And they can use the really valuable address that we’ve got as part of our network, but they don’t actually work with us.”

It’s called a “virtual office,” and it’s become a real moneymaker for the Australia-based company. Servcorp has been renting executive office spaces around the world since the late 1970s but only entered the U.S. office market during the last recession, when commercial real estate prices slumped. It took space in several prime locations, and now leases 22 spaces in 12 major cities.

Starting at $250 per month, clients can rent a “virtual office,” which includes the fancy address, a local phone number (think Manhattan’s coveted 212 area code), a dedicated receptionist to answer calls and receive mail, as well as the option to hold meetings or work in the space a few times a month. Clients can pay more for a dedicated office, a conference room or more “real” time in the space.

“The last 10 years has seen this real growth in small-business opportunity, or the boutique-ification of many industries and the automation of industries brought along by technology,” Moufarrige said. “The thing that kills small businesses is rent and people.”

The value of the address is also quite formidable, especially One World Trade, the crown jewel in Servcorp’s portfolio.

Emily Gaffney | CNBC

Parfait Mutimura, who runs niche investment advisory firm Novartis Capital Management, recently sat in one of Servcorp’s small conference areas, interviewing a potential employee. His view of Manhattan ran from river to river. A quick Google search for Novartis shows the company address as One World Trade Center, although Mutimura just uses the co-working spaces and the virtual services.

“I have investors from Europe and in Africa, but when I tell them I’m located here, they know they can find me on Google, and it gives me more legitimacy,” Mutimura said. “If someone can have an office here, they know you are legit.”

No question, virtual offices pack a marketing punch. Executive office suites have been around for decades and remain a relatively small chunk of the overall office sector, but technology has caused a boom in small business. Boutique financial services firms, public relations firms, marketing companies and information services shops — anyone with a laptop can start a business anywhere. But location still matters.

“The aim of marketing is to build trust in clients, so you create an environment where they want to buy from you. And really this is maybe turbocharging that, but the fact is that’s really what our intention is,” Moufarrige said.

Servcorp invested in a technology platform to allow its clients to sign in to their virtual offices from 24 different countries. They can switch local phone numbers and addresses when necessary from their smartphones. Servcorp claims 40 percent of its revenue now comes from virtual office clients who want five-star locations.

That is how it aims to compete with operations like WeWork, Regus and Spacious. Flexible office space is gaining ground globally, but Moufarrige said he believes co-working has already become passe. Instead, he says, virtual is the future.

Critics, however, claim co-working and virtual offices will face headwinds, soon.

“We have yet to find out what happens to WeWork and things like this when the office market softens, which is probably not too long from now,” said billionaire investor Sam Zell, chairman of Equity Group Investments, in an interview Tuesday on CNBC’s “Squawk Box.” Zell admits he has invested in companies like these, “though not successfully.”

For now, though, virtual is working for Jordan Hamad, CEO of Chair Seven, a technology consulting firm with seven employees. It is based out of Oregon, but Hamad rents space, both real and virtual, at One World Trade Center.

“There is a good deal of prestige that comes along with being here. It’s the most recognizable address in the world, and so it’s great we can attach the company name to that,” said Hamad, who noted that he would rather share space with high-end clientele than take a cheaper option like WeWork.

“We’ve met many established firms, lots of reputable organizations, and formed several partnerships, business partnerships, just from elevator rides, which is great,” Hamad said.

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